Oral evidence: Better Regulation, HC 487

Oral evidence, 13 July 2016.

Witnesses

Martin McTague, Tom Thackray and Matthew Upton.

Chair

Good afternoon and welcome. We are here today to look at better regulation. Cutting the cost of business regulation is a big target of the Government, and the NAO has done a Report, which was published at the end of June. They are not here yet, but we are expecting 15 councillors from Blackpool, so if you think you have a nice amount of seating space, watch it, because you will be bunched up a bit soon. They will be in the Public Gallery later to look at what we are doing, and at how witnesses react to it, I suppose. We have two panels today. The first deals with people on the receiving end of Government regulation and, indeed, of the reduction in regulation. We have Matthew Upton, the head of policy for consumer and public services at Citizens Advice, who is giving us the consumer perspective—thank you for coming, Matthew—Martin McTague from the Federation of Small Businesses, where he is the national policy director; and Tom Thackray, the acting director for competitive markets at the CBI. We have a hashtag today, which is #betterregs, for anyone who wants to follow this on Twitter. First, I want to ask each of you to briefly comment on how meaningful the national Government target on reducing regulation is to businesses and consumers, especially given that so much activity, such as the national living wage, sit outside it.

Tom Thackray

I will start by saying there has been a lot of progress around the better regulation agenda over the last few years in the round. If you look at the establishment of the target, it has injected a little bit of discipline among Government Departments, which now have to be accountable to a figure that they work on with the BRE at the start of the Parliament. We now have the Regulatory Policy Committee, which has been up and running in earnest for the last five years or so and has brought about a rigour so that businesses have a little bit more confidence that the regulation that comes through is subject to an impact assessment that has been fully scrutinised. In terms of the target itself, what came out very strongly from the NAO Report was that there are a lot of carve-outs from that particular target, which means that when you hear a figure about the amount of money that has been saved through deregulation, sometimes that does not resonate with businesses as much as it could do. Our position is that to include as much as possible within that target would be beneficial for businesses’ understanding of the target and making them feel it in their pockets. If things are not included within the target, very clear and transparent communication of why they have not been included, progress towards the target at the time of reporting, and also being clear that these things have not been included would give businesses a much better understanding of what they’re dealing with.

Chair

Have you seen an appreciable impact? Has it made any difference to your members?

Tom Thackray

If you ask businesses if they have felt an immediate difference in the change of regulation I think they would say, “Not immediately”. Where it has made a difference, and the evidence is there in the NAO Report, is that the quality of regulation coming through Departments and the kind of scrutiny that the target embeds within Government has been beneficial.

Chair

So it is better, rather than less, from your front-line perspective?

Tom Thackray

Yes.

Martin McTague

We polled our members just before the general election and I don’t think it will come as any surprise to people round this table that regulation again came as the No. 1 concern for our members. Although we recognise that having an impact target is valuable, and we welcome the work of BRE, and in some ways it is realistic in that it is a continuing target based on what was achieved in the previous year, when we surveyed our members we found that only 3% noticed an impact. A tiny percentage of the small business population even noticed there had been any impact on regulation, which seems to back up some of the criticism the NAO raised. There is a lot of cynicism about the fact the number could be manipulated and I felt that there was a really strong feeling that some of the most important things our members were concerned about, in particular tax, were excluded from the calculation. That is, day to day, the most immediate impact they feel from their relationship with Government.

Matthew Upton

One of the key points for me is that some people might expect this to be seen, from our perspective, as a consumer vs business argument. It is not at all. Good, strong consumer protections benefit both businesses and consumers, in terms of building consumer confidence and the knock-on effects that might have on the economy. In terms of the target itself, the danger is that, as a flipside of looking at it, because it is quite broad—we often get caught in the dangerous debate about regulatory burden and red tape, which is often thrown around—anything could arguably be dragged into it. For example, the terms bandied around about the national living wage are on red tape, but that’s not red tape; it enables some of the lowest income families to have a better standard of living. Obviously, one of the complexities, which highlights one of the challenges that the NAO Report flags up, is the impact of something like the national living wage—in very simple terms, if you put money in people’s pockets, they then spend it, which can have a beneficial impact on business. One of the challenges we saw in the Report was the lack of any assessment of the wider societal impact of some of these changes. These are very complex issues. It is one thing to make tax processes simpler for small businesses. Some of the more complex things around the reverberations of stripping away consumer protections are really difficult to calculate. The final point I will make about the things in and out of the target is on why it is a good idea for some of the things to be outside the bounds of the target. I saw reference to things like price controls. Say the FCA wanted to change caps for payday lenders—it would be a dangerous precedent if that regulator or Government Department was worried about something that could be so important when it comes to consumer protection and was having to think about the trade-off in terms of meeting the target. I note the NAO Report says that regulators expressed some concerns about how that might be perceived in terms of their independence. There are good reasons why some things are excluded from the target.

Chair

You have addressed the very knotty issue. I am delighted to welcome 15 councillors from Blackpool, who are coming to observe us today. Tom Thackray, you touched on how the Department and the Better Regulation Executive understand the impact of activities on businesses. Matthew Upton, you talked about the wider impact assessment. Do you feel that the voice of business is really understood? Mr Thackray, you said that it got better with the committee being formed. Do you think it has got it right yet? What do you want to see being done better?

Tom Thackray

A few things have been beneficial. The dialogue is there, and not just through the target setting. If you look across the better regulation agenda, we have had things like the red tape challenge, the focus on enforcement and a sector look at the type of regulations that are most problematic. That might be not in the scope of the regulation, but in how they are enforced.

Chair

Did your members get a chance to have an input on what they thought were the most problematic ones? Do you feel they had a voice?

Tom Thackray

Yes, and that has worked particularly well when it has been done on a sector basis. When we started the red tape challenge, it was a bit of a free-for-all. Everyone inputted their ideas across any kind of regulation, and it was a bit unstructured. The later iterations of the red tape challenge were much more sector-focused and much more fruitful in the eyes of business. That has been good. When it comes to the target, as I said at the start, the Regulatory Policy Committee has been a great asset to businesses because it is a check and balance on Government regulation. Businesses themselves would not be able to spend the time going through impact assessments and checking that they are correct. Small and medium-sized businesses in particular do not have the resources to do that.

Chair

Can you give us an example of a regulation that still exists—as Mr Upton says, regulation is often there for a very good reason—but has been altered, adjusted or tweaked by Government as a result of lobbying by the CBI or its members?

Tom Thackray

It is not an example of a specific regulation, but I know that through the work of the Regulatory Policy Committee, the savings to regulation that were estimated in Parliament were substantially reduced because the Regulatory Policy Committee were able to look through the estimated savings that Departments had given them through the impact assessments and had revised those down, so that they are a much better reflection of what it actually contributes to the target.

Chair

You keep talking about the target, which is a national target, but what about the actual impact on businesses and how they work?

Tom Thackray

The Regulatory Policy Committee is very open and easy to engage with, so trade associations can input their opinions.

Chair

They feel they are getting that access.

Tom Thackray

Yes. Through trade associations, the FSB and the CBI, there is an opportunity to input. Few small and medium-sized businesses would go directly to those kind of institutions.

Martin McTague

We do not have any serious criticisms about the way the system is working. It is more about the scope. You pointed to the fact that if you look at individual pieces of regulation, they hardly register with a lot of our members. There could be a fine-tuning that would make it a bit of a way than one particular sector, but it would not have an overall impact. The big headline items, such as tax or tax administration, are the ones that would have the most impact on our membership, or on the small business community as a whole, and they get overlooked. Until something like that is included in the scope, I don’t think you are going to get a lot of plaudits from the small business community.

Matthew Upton

Obviously, I can only talk from the perspective of consumers.

Chair

Yes, absolutely, but the issue is there.

Matthew Upton

It takes a pretty dedicated person or consumer to respond to something like the red-tape challenge on their own behalf. There are people out there and they are fantastic but that is obviously partly why organisations such as ours exist to do so.

Chair

Do you feel you have access?

Matthew Upton

One of the worries, when you look at the impact analyses that have been done, is that there is such a strong business focus, consumers’ voices are not heard. On the flipside, when it comes to some of the other consumer regulations—the Consumer Rights Act 2015, for example—we were very closely involved. If you look at individual bits of regulation, we are very successful. The Departments and regulators we work with are very open to hearing the input from consumers.

Chair

I am getting a strong impression that there is not a big door in Whitehall that you are banging on. There is an open door and you are able to get access and talk to the various Committees and regulation groups involved.

Martin McTague

We sense they have got one arm tied behind their back. It is not like they are not effective; they are just restricted.

Chair

On tax, we know from what you have said, Mr McTague, and figure 4 in the Report, that 46% of businesses said that tax administration was a burdensome area of compliance, and it is out of scope; 44% said that employment law was a burden and 37% said health and safety. Those are the big ones. Do you, Mr Thackray and Mr McTague, have any comments on those and how, while also protecting consumers, they could be made easier for businesses?

Martin McTague

In terms of tax administration, there is quite a lot that could be made simpler. OTS is working on that all the time. That is where the focus needs to be, on simplification of the tax regime, and not adding to administrative burdens. The potential for quarterly reporting to be introduced and the impact that would have on administrative costs is a classic case of where it could get a lot worse.

Chair

Do you think you have got room to have a discussion space with HMRC about how that will work? You must have other routes and channels to talk to them. We have heard the Minister; it is clearly a ministerial objective to have quarterly reporting. They maintain that that might make things easier over time. Are you confident that you have any influence there at all?

Martin McTague

We do have an influence; our large membership gives us that influence. The real problem is that it can always be ruled out of scope. If we are getting into, for example, issues about tax administration, we are playing by a completely different set of rules.

Chair

So basically, because it is not in the scope of this target, it is dealt with as a different issue. Prioritisation is the target.

Martin McTague

It is dealt with completely differently, yes.

Chair

Mr Thackray, you are nodding. For the record, do you agree?

Tom Thackray

Absolutely. It is not that there are not targets to reduce the burden of tax administration, as well. It is just that it is dealt with separately. For a business trying to figure out what the overall picture is, it has to go to one set of rules and guidelines to understand one policy and go to another place for another.

David Mowat

You mentioned tax, Mr McTague, in three of your answers as being the biggest issue. It is not in the scope and you mentioned quarterly reporting, which has not happened yet. In a sense, tax is always going to be an issue, because people don’t like paying tax. The question is whether it is proportionate, isn’t it? Is it your sense that there is stuff around tax that is not reasonable?

Martin McTague

We estimated that the average small business spends £3,600 a year trying to comply with tax administration. That means that it disproportionately hurts and makes small businesses more inefficient.

David Mowat

Okay; that could be a few days with an accountant, I suppose, or something like that.

Martin McTague

Well, it is more the time—

David Mowat

Or writing up the books.

Martin McTague

Well, complying with regulations of all sorts.

David Mowat

Keeping accounting records, which is what some of that will be—that isn’t an unreasonable thing for a business to have to do. I am just trying to get a feel for whether or not there is a real problem here. Are we worse, say, than France or Spain, or America? Is there something specific here, or is it just that tax is a boring thing to have to do, and it is money out of the business—a wish to make it easier, somehow?

Martin McTague

Many of our members do not make international comparisons—

David Mowat

But you could, I suppose.

Martin McTague

Yes, we could. I think the problem is not so much paying tax; they accept that that is a civic responsibility. What they resent is a lot of the burdensome administration that goes around that process, where it could be a lot more efficient, a lot more streamlined. It is not about regulation, it is about smart regulation and the complexity of that regulation.

David Mowat

Right, but when you say burdensome, you mean that the Revenue are unreasonable, or that the processes employed are unreasonable?

Martin McTague

I will give you one example. If the Revenue want me to pay tax they expect me to pay it electronically, and almost immediately. If I get a refund I get a cheque that appears, maybe if I am lucky, a month later, and then I have to go down and pay that into a bank account. That is an example, where you are imposing an unreasonable burden on the taxpayer.

David Mowat

I am not sure it is regulation; it might be unreasonable behaviour by the Revenue, but I am not sure it is particularly the regulatory burden—that they take money quicker than they give it back to you.

Martin McTague

I think you are right. I think what defines what people think is regulation is a real blurred area.

David Mowat

Fair enough. I wonder, in the evidence—also you, Mr Thackray, when you started off about this target—is it real? Everybody would like to have less regulation, and I think your evidence was the new stuff is better because it has to go through some process that at least makes people think about it; and you were quite positive about that when you first spoke, whereas you gave the impression that older stuff hadn’t had much impact, yet. Would that be a fair summary?

Tom Thackray

I think that is part of it. I think there is a kind of credibility around the system, now; and I guess what you cannot prove is the counterfactual, so if we did not have the target what would be the situation in terms of the type of regulation that we would be going through.

David Mowat

I suppose, just looking on the bright side for the moment, at least if the new stuff was a bit better that is progress of a sort, isn’t it?

Tom Thackray

Absolutely, yes, and I wouldn’t undermine the relevance of having a target.

David Mowat

The other thing I would have thought would have happened for your business was that there would be quite a lot of sector-specific issues. When you look at all businesses you are going to get into generic things like tax; but, I don’t know, if you are in chemicals there may be some specific things that really annoy chemicals companies but do not affect retailers at all, and that does not come across very clearly in this sort of analysis on figure 4.

Tom Thackray

Yes, and I think in terms of the number of regulations that have been taken out you can see that the vast majority are only very small regulations, which probably plays into that as well—the small, sector-focused regulations, in terms of the volume that has come out of the system. It is not all about the quantum of regulation, either; so if we talk to members about what is the most beneficial thing that the Government have done in terms of regulation in the last few years, what normally comes back is the primary authority scheme, which is about consistency of enforcement. It is not necessarily about the scrutiny of new regulation only; it is about how the existing regulation is enforced properly.

David Mowat

I suppose what I wonder—I think I saw in the Report that what they have achieved so far is £400 per business, or some number like that was there. You have to be a pretty small business for that to be material, and if you are Shell it is not something that you would be discussing at board meetings, I guess. It is good that we have more process around new regulation. I am just wondering whether or not all this target stuff is just spurious—figures like £10 billion, and trying to work towards it or not—and we should be trying to streamline regulation, and do all that, but the target is looking for a problem or a solution that does not really merit it in that way.

Tom Thackray

I would say that one of the main benefits to the target is more internal, within-Government focus. It makes Departments think about what they need to do to achieve that target. From an external perspective I guess it gives you an incentive to game the system to make the target. So it is useful to have, but businesses do not live and die by the achievement of the target.

David Mowat

You would support having a quantitative number of some kind.

Tom Thackray

Yes.

David Mowat

And that is true of you too, Mr McTague?

Martin McTague

Yes. I think it has changed the atmosphere around regulations, but whether it has had a material impact—it doesn’t look like it has.

Chair

Okay. So I think what you are saying is, “It may be a slow-burner.”

Chris Evans

I am looking at figure 4 now. I hear all the time from businesses in my constituency that we must cut red tape. I say, “What red tape?” and they go, “Red tape.” I say, “What red tape?” and they go, “Red tape.” Do you think “red tape” is a catch-all term for people who just want to have a damn good moan about things?

Chair

Mr Evans has a way of calling a spade a spade.

Chris Evans

I am looking at figure 4 and most of the areas businesses find most burdensome: tax, employment law, health and safety. Do you think “red tape” is just a vogue word that people have come up with just to have a good moan?

Tom Thackray

I would say no. I think it is real. I think the burden of regulation is real. In terms of regulation that was cut during the last Parliament, I think the figures were properly scrutinised, so they actually have an impact on business when you take them away. I don’t think belittling or playing down the mood music of business is the right thing to do. As I think Martin said earlier, the definition of regulation is where we get into problems here.

Chris Evans

This is what I am trying to get at. I am just saying that when you ask people what specific red tape they are talking about, they have real difficulty in defining what they mean. I get that an awful lot. I get issues about planning, individual issues and anecdotal issues, but I don’t have a sort of catch-all term, and that is what I was trying to drive at there.

Martin McTague

I can probably help. What I have found is that it is that overwhelming feeling, which a lot of small business owners get, that there is lots of regulation out there that they don’t understand and they don’t know how it may impact on their business. It is a sense of being overwhelmed and not understanding the risks that their business is taking on a day-to-day basis. When you then pin them down and ask what it is they are worried about—well, it is just that vague feeling that it is all crowding in.

Chris Evans

Exactly right.

Martin McTague

I think that is real and should not be dismissed, but it will not be solved by dealing with one particular regulation.

Matthew Upton

Can I just say something quickly on that from a consumer perspective? As I say, this is not a consumer versus business issue, and there are some areas where we will be aligned, such as regulation that leads to things like the state of terms and conditions in contracts at the moment or the state of an energy bill, if you have had one recently through your door—specific regulations that are trying to act in the interests of both businesses and consumers, but that work for neither. No one understands the t’s and c’s. Business have to abide by them, but they don’t work for anyone. In terms of the catch-all sense, often I think it can be used as a term when people do not want to act right by consumers. We see specific examples in sectors like payday, where there are a lot of complaints about stopping the ability to charge 5,000% interest rates, which is seen as a regulatory burden. In the private rented sector, there is a case I was reading this morning of someone who was kicked out of their house because they asked for the mould to be fixed in their flat and the landlord said they were moaning too much. I am sure that, if some of those regulations were not in place, it would make things easier for some businesses. It is a bit of a mixed picture, to be honest.

Chris Evans

What about layering more regulation? If you start a job, you have an induction programme and you have training. If you start a business as an entrepreneur and you strike out on your own, there is no manual. Do you think in many respects that the Government should maybe be giving more signposts to potential entrepreneurs and people who want to start businesses, about where they can start cutting through? I am trying to find ways of helping people so that we are not here talking about this vague “red tape”.

Martin McTague

That is a nice idea. The only problem is that I think we are having trouble encouraging people to be entrepreneurial to start off with. If we gave them a manual of all the regulations they may have to comply with, I don’t think we would have any.

Chris Evans

That’s the feeling I had when I asked that question.

Tom Thackray

I can add to that. There is a lot of good advice out there for businesses in sector trade associations, who often do have the time and the resource to dedicate to what regulation is coming down the track and how you might turn your attention to it. If we can get small and medium-sized businesses more networked and more involved in their sector associations—

Chris Evans

The No. 1 fear when I was a trade union official was that small businesses are afraid of contracts and employment law, in particular. There was not a lot of help, therefore, when I was a union official. When I became a Member of Parliament and I employed staff, I had help with employment contracts. A lot of entrepreneurs do not have that, and legal advice is expensive. Do you think that is something that can be addressed in some way to get over that fear of employing people?

Martin McTague

I think that is right. A lot of the evidence we see about companies that are failing to grow shows that it is because of that exaggerated fear of taking on new people because it could end up in a tribunal or have all sorts of implications that they had not foreseen. Having a more educated approach to that and more leadership and management training will address a lot of those problems.

Chair

We have witnesses from the Department of BIS and others from the regulatory side of things after you. What three things do you think would make life better—forget the big target—for your members and, indeed, for consumers? Mr Upton, we will start with you and go the other way for a change.

Matthew Upton

One would be to raise awareness of the flip side of business regulation, which is consumer detriment. We have a report out in a few weeks, which is going to estimate the total scale of consumer detriment across the UK. We are looking at tens of billions of pounds every single year for consumers. The figure for consumers is similar to the £400 in business pockets.

Chair

Say someone is trying to take legal action because of their landlord, or that sort of thing—

Matthew Upton

This is the sharp end. This is buying a good that breaks instantly, the failure to get a refund and all that sort of stuff. This side—the hidden detriment of consumers finding it very difficult to switch to the best energy deal, for example—is separate from that. That is a whole new scale of detriment. We would ask—I think the Department takes this very seriously—to keep consumer detriment as a high-profile issue. We rightly get a lot of attention and anger about tax rises, benefit cuts and the money that those things take out of consumers’ pockets, but consumer detriment is the same thing: it is all money out of people’s pockets. The other thing—this will probably be echoed by the other members of the panel—is that there is absolutely a need for prescriptive regulation in lots of cases. It is really simplistic just to say that whole swathes can be stripped away and it becomes a numbers game, but I think there is the opportunity for smarter regulation. We can learn a lot from behavioural economics, in terms of what really works for consumers. We can test things with consumers and businesses to make sure regulation is genuinely fit for purpose, rather than just layer on rule after rule. The final thing, which links to my first point, is that we must make the point about how important consumer protections are. There will probably be a lot of push, in the context of the economic situation that we find ourselves in post-Brexit, to strip away and make things easier for businesses by just simplifying and stripping away lots of consumer protections. There is the idea that that will make things easier, but it is like pulling the tail of a snake—be careful what you wish for. Consumer protections are really complicated. Consumer confidence is all wrapped up in them. There is a reason our consumers feel much more confident than their European neighbours, and that feeds through to businesses as well. So don’t rush into anything, don’t do anything rash and really think through what the impacts are, because protecting consumers helps businesses as well.

Chair

Thank you for that. That is very clear.

Martin McTague

I only have two asks.

Chair

Only two? Mr Donnelly is smiling behind you.

Martin McTague

I can only think of two that quickly. One is to lobby whoever the new Chancellor is to try to widen the scope of the RPC to take into account tax administration. The second one is to make sure you are properly resourced for what will be a lot of work incorporating current EU regulations into UK law.

Chair

We are certainly going to be asking about that.

Tom Thackray

I would echo Martin’s point about including as much as possible in the target at the moment. If it is not included, we need to be slightly clearer about why it is not included in the target. The other point, which we haven’t really touched on in this session is the focus on existing regulation. I think we would be able to set much more accurate targets for Departments if we looked back at previous regulations and looked at their real impact, so you can see how far you can push them to deregulate in the future.

Chair

Could you give an example of anything there?

Tom Thackray

One of the criticisms in the NAO Report was that while the BRE guidance suggests that Departments should look back at regulation once it has been implemented, that happens in practice very seldom. Actually, if you did more of that backward-looking at regulation that is already in force, you would be able to set a more realistic target for that Department. The final point, which I have mentioned a couple of times, is, do go sector by sector. I think that is where most of the knowledge about the application of regulation is, and I think that is where it has borne the most fruit over the last few years.

Chair

Thank you very much indeed. We appreciate as a Committee your time and your expertise. Our transcript from this hearing will be available in the next couple of days—it is uncorrected, straight to the website—and you will get a copy. Our report is likely to be out in September or even October because of the way our recesses fall. We will make sure you get a copy. Thank you very much for giving your time. You are very welcome to stay for the next session. We need to switch witnesses over—their seats will be warm for you, if you want to stay. Examination of witnesses

Witnesses

Sir Martin Donnelly, Graham Turnock and Michael Gibbons.

Chair

For our second panel we have the people in charge of making sure that the Government target on reducing regulation is in place. Again from my left to right, we have Michael Gibbons, who is the chair of the Regulatory Policy Committee—welcome to you; Sir Martin Donnelly, the permanent secretary at the Department for Business, Innovation and Skills; and Graham Turnock, the chief executive of the Better Regulation Executive. It seems these regulatory roles could keep you going for the rest of your lives, given the amount of work involved. I will hand straight over to Chris Evans.

Chris Evans

Welcome to the Committee. The Small Business, Enterprise and Employment Act 2015 required the Government to set a target called the business impact target. How are you doing against that?

Sir Martin Donnelly

I will ask Graham to give you a detailed readout. I will just say that the first annual report on the business impact target came out in June and showed, I think, a breakdown by Department as well as in total.

Graham Turnock

So far, £885 million net reduction, so that is just under 10% of the way towards the £10 billion target.

Chris Evans

That is not quite right, though, is it? If you look at paragraph 8 in the executive summary, it says, “The £8.3 billion of expected costs imposed on business so far this Parliament that are not included in the scope of the Target greatly exceed the £0.9 billion”, which is the £885 million you just quoted. So the target is pretty useless because you have taken out that £8.3 billion. Can you explain why you have done that?

Sir Martin Donnelly

Yes. The target is set by Ministers. You rightly referred to the SBEE Act, which explains the system for deciding on exemptions. Ministers have decided that tax burden is dealt with separately through HMRC and they have a separate target that you might want to talk about. There are other exemptions, including international and European legislation. Any further exemptions—I guess we will come on to the national living wage—have to be examined against the need to ensure that growth, small business impact and minimising the cost to business are all checked. Then there is a transparency, so we have to explain why things are outside, and the Government does that. You are right that it is not the total, but there is clarity about what’s in and what’s out and then we focus on the bits that Government can have the most impact on.

Chris Evans

But if you look at figure 2 on page 17, the four things in here that you have taken out, if I’m right, are “EU in origin”, “International in origin”, “Relate to fees and charges” that regulators impose on the country and “Others, eg emergency measures”. They are some big-ticket items that you have taken out of the target. The question I have to ask, Sir Martin, is, is this target totally useless and just smoke and mirrors, so the Government can feel good about themselves?

Sir Martin Donnelly

We have to work within the parameters that Ministers set for the target, but on the question of how useful it is, I believe that it is useful. But I would echo the points that were rightly made by your last witnesses: this is work in progress. We have been working on the issue of improving regulation in the UK for a good 15 years. We think that we are making progress and that this business impact target does concentrate Departments’ minds on thinking more, and more effectively, about the impact of specific regulation on business. By setting them targets, we are, over time, improving that.

Chris Evans

But you have a target of £10 billion—am I right?

Sir Martin Donnelly

Yes.

Chris Evans

In paragraph 2.6 of the Report and figure 3, it says that you were not including will raise “cost to business by £8.3 billion” and that does not include the new national living wage, which will add costs of £4.1 billion. So you are going to fail to hit this target, then. If you include everything, you are not actually reducing any regulation.

Graham Turnock

If I may correct one part, you said it does not include the £8.3 billion, but I think it does include the £4.1 billion for the national living wage.

Chris Evans

Sorry, I’ve misread it—but could you clarify that? It says, “Of this net increase, the National Living Wage is expected to add costs of £4.1 billion to business, and increases in the National Minimum Wage to add £3.1 billion of costs.”

Sir Martin Donnelly

Government Ministers have decided and explained to Parliament that they do not consider that those are appropriate to take as within the business impact target that we are looking at.

Chris Evans

Could you walk me through why you came to the decision to exclude things like EU regulation, international regulation, and fees and charges? I can understand emergency measures, because they cannot be foreseen anyway, but I am interested in those three in particular, given that, as we have seen in the press over the last couple of weeks, the EU has obviously been quite high up the agenda.

Sir Martin Donnelly

Yes. On EU regulation, I think there are two factors, and my colleagues who both know more about this will want to chip in. One is that, often, EU regulations are negotiated some time—perhaps several years—before they are implemented. The other is that since we are looking here for incentives for Departments to deal more effectively with the regulation for which they are responsible, EU regulation has so far been handled on a European level. We have the REFIT Platform. We have commitments from the European Council to look in particular at how you lighten the burden on small business and so on. That has been looked at separately to ensure that the link between the incentives to meet your target for deregulation are not obscured by what is going on in Brussels. On fees and charges, it is a bit the same. Do you want to add anything on that, Graham?

Graham Turnock

Fees and charges is subject to a Treasury regime, which starts with the presumption that there should be full cost recovery for services. We believe that including it in the business impact target would be a duplication of that regime, which already creates the right incentives on regulators.

Chris Evans

So how will the target by affected by the forthcoming Brexit? It’s got to be reset and recalibrated.

Sir Martin Donnelly

When we have left the European Union, areas of regulation currently dealt with on an EU level will logically be dealt with on a national level. Then the starting position—Ministers will want to decide, again, the precise parameters—is that they would be caught by the business impact target, but the precise details of course will have to be decided by Ministers.

Chair

Let me bring in the Comptroller and Auditor General.

Sir Amyas Morse

I just want to pick up on that full cost recovery point. Generally speaking, the Treasury’s full cost recovery formula is the most expensive possible way of looking at costs, with the full loading of overheads and everything else. It is not a mitigating argument, is it? You are saying, “Well, we’re charging full cost recovery, which means we are actually giving them a bit of a pasting on costs.” Would that be fair? We all know that that’s how it works—even the Treasury Officer of Accounts is smiling.

Richard Brown

Something I do very rarely.

Graham Turnock

It is certainly intended to ensure that there is a proper calculation of costs. Additionally, we asked Departments to put pressure on their regulators to maximise their efficiencies such that those costs are minimised. I certainly agree with the Comptroller and Auditor General that there is a risk that it simply becomes passed through, but we have tried to mitigate that by asking Departments to work with their regulators to minimise costs.

Chair

How is that going? How can you be sure? What assurances have you got that you are actually getting them to reduce their costs?

Graham Turnock

I think it is going in the right direction because regulators are under pressure to reduce staff numbers anyway and they are reducing the number of inspections, so that would naturally lead to lower costs. Mention was made of some of our sector-specific reviews; a good example would be our review of the chemicals industry, which has led to much better targeted inspection regimes and should lead to more reasonable fees being charged.

Chair

The Comptroller and Auditor General is itching to come in.

Sir Amyas Morse

Are you saying that reducing the number of staff at a regulator will necessarily reduce regulation?

Graham Turnock

I am saying that there must be a correlation between a reduced number of inspection staff and reduced numbers of inspections. Therefore, because charges are often based on the cost per inspection, there would be lower costs.

Michael Gibbons

Before I comment on essentially the issues of exclusions, to which attention has been drawn, I just want to make sure that the Committee is fully aware of the distinction between the role of the independent Regulatory Policy Committee, which I chair, and the role of BIS and the BRE in sponsoring the framework within BIS. Our purpose is not to comment on Government policies; it is to scrutinise the evidence base for new measures, largely via impact assessments, to give Ministers the benefit of whatever advice we come with before they make decisions, and to add credibility with external stakeholders where we validate Government conclusions. It was very pleasing, at least for me, to hear the respondents from business say that they derive some confidence in Government claims as a consequence of our role in the process. The questioning so far has been about the definition of the target. The definition of the previous Parliament’s target also had exclusions. Those exclusions, for Whitehall, are the same as they are now, which is to say the European Union—you have rightly drawn attention to that—financial systemic risk, and fees and charges. Last time, the numbers outside the one in, one out account, which has been widely publicised, were bigger than those within it. We are not talking about a difference here. I at least can understand the Government’s rationale for wanting to exclude measures over which, in the case of the European Union, they don’t actually have control. You are asking about the BIT in this Parliament, and I draw the Committee’s attention to two points. There are two major changes in the exclusions from the definition of the target this time. The first, as has been mentioned, is the national living wage—the biggest single measure in the account to date is outside the account. The second is a rather long list of different categories of exclusion, which are largely there because the regulators have been brought in scope. We on the RPC welcome the regulators being brought in scope, but it appears that the way it has been done makes it inevitable that they have had to have lots of exclusions that are rather widely drawn and can be rather complicated.

Mr Bacon

I apologise to the witnesses that I had to step out of the Committee briefly, so I missed the changeover from the previous panel. I would like to ask a rather broad question—perhaps “deep” is a better word—on EU regulation. I have heard a lot of stuff on the radio in recent days from law professors whom I would have thought might know better, so I would like your confirmation or clarification. Regardless of what, ultimately, Her Majesty’s Government decide to do with particular pieces of regulation and, indeed, precisely because there is a whole pot pourri of different regulations covering a vast terrain, some of which are directives that have been transposed, some of which are directives that may get transposed but have not yet been, some of which are in train, and some of which are regulations that have direct effect, can you confirm that for the purposes of Brexit, whenever it happens, the obvious thing to do is, at the moment of Brexit—rather like what happened with India at independence in the late ’40s, where they nationalised the entire imperial statute and tweaked it at their leisure over a period of some years and did not really get round to it until the mid-1950s—to nationalise the acquis communautaire, so that there are no legal lacunae that the learned professors, whom one has been hearing on the radio, have been talking about? We would then, as it were, tweak—or, perhaps, more than tweak—at our own pace. Is that how it is seen inside Whitehall, Sir Martin?

Sir Martin Donnelly

I am not an EU lawyer and I don’t feel competent to answer that question. However, the position that you outlined is certainly one of the options that will be under consideration in the period before we leave the EU. My personal understanding is that that is possible but, as I said, I am not an EU lawyer.

Mr Bacon

I understand. I am not a lawyer either. I was a legal journalist but it is not quite the same thing. It was put to me this morning, by someone whom I think ought to know, that that is widely understood in Whitehall to be the likely solution in some shape or form. Is that fair?

Sir Martin Donnelly

I would not want to comment on likelihood, particularly this afternoon, but my understanding is that people will want to put that option to Ministers.

Chair

Let me be clear: there is discussion about this in Whitehall. Even if you are not able to share your advice to Ministers, there will be people working up advice that may or may not include what Mr Bacon outlined.

Sir Martin Donnelly

It is certainly the case that our legal teams and the Government’s legal service are very focused now on all these issues.

Chair

I hope that is the case.

Sir Martin Donnelly

It has only been three weeks since the referendum and there is a lot of work to do.

Chair

We asked your colleague at the Treasury this question: were there any plans in BIS for what would happen in the event of a vote for the UK to leave the EU?

Sir Martin Donnelly

We were following the guidance given by Ministers, which was not to make contingency plans for this outcome.

Chair

Okay. So on other issues such as jobs and migration, on which BIS sometimes has a different view from other parts of Government—you had not planned for any of that either?

Sir Martin Donnelly

We have been working very hard in the past few weeks, engaging and listening to businesses of all sizes. Ministers have been out there. There have been a lot of meetings including with the groups that you—

Chair

In the past few weeks. Since the vote, you mean.

Sir Martin Donnelly

Since the vote, yes.

Mr Bacon

I mentioned I was a legal journalist. I was a financial journalist as well and I used to follow trade talks—the GATT round and things like that—quite closely many years ago. There is now said to be a severe skills shortage in the area of trade negotiations because we have not had trade negotiators of our own; we have relied on our one twenty-eighth seat, represented by the EU Trade Commissioner. What steps are now being taken? Obviously some of it is going to be training up people but there are, on this planet, quite a few skilled trade negotiators and many of them are our friends in Canada, Australia, New Zealand and elsewhere. What steps are being taken to gear up and skill up Her Majesty’s Government for these negotiations in the short and medium term?

Sir Martin Donnelly

This is getting a little way from the Report, but I will do my best.

Chair

I know, Sir Martin, but it is your first outing since the vote so we are keen to hear.

Sir Martin Donnelly

I will do my best to answer but I would be grateful if you would take this as a personal view. As you know, it is the case that article 50 or whatever route has not yet been taken. If it is article 50 we would therefore expect a period of at least two years in order to prepare for the new situation. It is also the case that we have a lot of people who are experienced negotiators in a range of fora, such as G7 financial negotiations. In Europe, as you will know, the Commission trade negotiators work very closely with the national member states. It is similarly the case that a lot of people have reached out to us, which is much appreciated. We are seeking to use the offers that are coming in to train and, where appropriate, to bring people in. I think the key challenge in the short term is perhaps less on the trade negotiator front than the question of international trade law. We need to ensure that we have the right number of trade lawyers able to deal with the very detailed issues which you will know come up in the range of sectors. The second issue, and we are working very actively on this, is to make sure we connect with business as to what precisely the regulatory, tariff or quota issues we would have to deal with are. A lot of them will actually be regulatory.

Chair

Thank you.

David Mowat

I wanted to follow up on Mr Evans’ questions about targets and things that are in scope. The overriding, massive, quantitative achievement of the programme has been the plastic carrier bags figure. Would that be right? Of your £0.8 billion savings towards the target, 120% of it has come from the plastic bags initiative. Is that fair?

Sir Martin Donnelly

Yes.

David Mowat

I read that with interest. What we have done is passed a regulation that requires business to do something they weren’t doing and said, because of that, they are going to get the benefit of the revenue of the plastic bags—that is actually questionable; I will come back to that—and we are therefore going to claim that as £1 billion toward our target. Is that a fair summary?

Graham Turnock

It is a fair summary but it follows the rules.

David Mowat

Following that, you charge 5p per bag. Had you charged 7p per bag you’d have got £1.4 billion towards the target?

Graham Turnock

I don’t think so.

David Mowat

Why is that?

Graham Turnock

Because there is provision for the businesses to give a substantial part of the proceeds to charity. I think it may well be the case that the charitable contribution would have gone up if the charge had been higher.

David Mowat

Alright. What I am getting to is that there is a sort of Alice in Wonderland element to this, isn’t there? We passed a law requiring businesses to do something they were not doing. As a consequence of that law and the regulation we have imposed on business to do something they were not previously doing, we are claiming £1 billion towards our target. That is like something out of Alice in Wonderland.

Chair

Figure 13 shows that.

David Mowat

Your point was that that is the rules, but that is also an Alice in Wonderland-type answer, to be honest. Does it really strike you as being within the thrust of what the Government are trying to achieve in this policy and with this target that we can have £1 billion towards it because of a regulation we have imposed on business?

Michael Gibbons

Can I try? We validated this measure so I am happy to answer for it being within the rules. Incidentally, in the last Parliament this would not have counted against the “one in, one out” account, because it is a new regulation and new regulations, however beneficial to business, did not qualify as being in the scope in the last Parliament. The change has been made for this Parliament. It is a regulation; there is no question about that. The benefit arises because, as a direct result of the regulation, the businesses concerned will receive an income stream related to the 5p. I think your supposition of the consequence of increasing the number is probably near to reasonable. Also as a result of that, they need to purchase fewer plastic bags. They therefore have a profit as a consequence—a benefit as a consequence—which we have validated. Graham is right to point out—

David Mowat

They have a profit if and only if consumers don’t spend less on other things because they are spending that money on the bag. That is one of your assumptions in this.

Michael Gibbons

That would potentially be an indirect effect. We are measuring the direct effects, which are that there will be a payment and there will be fewer plastic bags. Graham rightly makes the point that businesses are then invited to make a contribution to charity. Because they are invited and it is not a regulatory requirement, we have not scored it as a direct effect. That is why you see a big benefit on the account.

David Mowat

So I am right in saying, I think, that had you put in a charge of 7p and not 5p you would be even closer to your target. You could charge £1 and you’re there. You’re there—you have got your £10 billion, actually. This is not what the Government meant to happen when they were talking about reducing regulation.

Michael Gibbons

I would agree with you that it is not deregulation as we know it, but it is a regulation with a positive—

David Mowat

It certainly isn’t deregulation as we know it.

Chair

You talk about it being a positive outcome, but every business that qualifies under this—that has to provide bags—has to have changed, for example, its till system and charging system to get the 5ps. Then it has to make sure it accounts for that and—if that’s what it chose—the charity, although you are saying that is out of scope. As Mr Mowat has rather deftly highlighted, and you have acknowledged—I think you said this—it is regulation, but not as we know it. Sir Martin, do you have any comments about this, before we go back to Mr Mowat?

Sir Martin Donnelly

Yes, I would make two comments. One is that it is not something that the Government itself has decided, and that’s an important point.

Chair

Sorry. What is not—

Sir Martin Donnelly

The fact that this figure was added to the net total. It was decided through the independent RPC and the process—so the process is independent. The flipside of that is that other things, such as lifting the cap on student tuition fees, which also benefits universities and other enterprises like that, have not been counted. Work we did on ring-fencing simplification has also not been counted. You have to draw the line somewhere. Every system is going to throw up slightly unusual cases. My point would simply be that we have got a coherence in the system that, over time, produces better outcomes for business. You can certainly argue the toss on individual cases, but I think you have to look at the system as a whole.

David Mowat

I have never been in the retail business, but you could argue that we have given business £1 billion, apparently, with this initiative. If it was such a good thing, businesses might have done it themselves anyway—it did not need the Government to pass a law to put in this regulation, which then counted £1 billion towards the deregulation target.

Sir Martin Donnelly

You might have for the wider environmental issues—

David Mowat

No, I am not saying it should not be done. What I am questioning is whether it should score towards a £10 billion target, as 10% of it. If we go to figure 12 on page 35, there is the “Increase in estimated benefit” with the £200 million a year, which is presumably the £1 billion towards your target, but if I look at the line for standardised tobacco packaging at the top, you have included there an increase in cost. Have you included in that a loss of revenue—people selling fewer cigarettes?

Michael Gibbons

Yes.

David Mowat

You have included that. So that £48 million is not just a packaging cost; it includes the reduction.

Michael Gibbons

That’s right.

David Mowat

I will just finish then, Sir Martin, by asking you a question. You say it is an independently verified figure, which is a bit like saying, “Well, it wasn’t us that did it; it was the independent people”, but you are claiming it towards your target, aren’t you, so effectively you own it?

Sir Martin Donnelly

We are saying that there is a set of rules that apply to all these cases—they get applied independently and we then take the results. We do not influence individual—

David Mowat

Would you agree that when Ministers were dreaming up this deregulation challenge and the target of £10 billion, this was not the sort of thing that they thought would be in it?

Sir Martin Donnelly

I think they were trying to design an overall system. You have to do it in system terms, otherwise you do not get the coherence.

David Mowat

So the answer to my question is that when Ministers were coming up with the £10 billion target to reduce regulation across the country, someone said to them, “Well, we might think of some new regulations that increase benefits to business. That’s a great thing to have.”

Sir Martin Donnelly

If there are benefits to business, they get assessed, picked up and put into the system. Overall, that seems fair.

Mr Bacon

May I ask for a point of information, just to flog this plastic bag thing a bit more, because it is such fun? When you said that there is a provision for giving some of the money from the collected tariff, as it were, to charity, can businesses give the whole 5p to charity, if they want?

Michael Gibbons

It is their decision.

Mr Bacon

They can give the whole lot to charity, if they wish?

Michael Gibbons

Yes.

Mr Bacon

So when I see the sandwich shop where I buy my sandwich every Friday putting the whole 5p into a tin for the Royal British Legion, that is perfectly okay. They didn’t need to change their systems. Is it necessary to change your systems to do that? They haven’t done—I still get my sandwich.

Michael Gibbons

I don’t recall what the IA said, but I can imagine that in some cases it was necessary and in others it probably wasn’t. I would need to check.

Chair

We are getting away from the subject of the Report a little. I suspect it is a bigger issue for organisations larger than your sandwich shop, Mr Bacon.

Chris Evans

Can I put on record that the plastic bag charge was a Welsh innovation? We had it first.

Chair

It’s all your fault.

Chris Evans

Before we move on, I want to mop up one or two questions about the target. Why was the national living wage not included? It is obviously a flagship policy for the Government. There is an ongoing dispute just outside my constituency about the national living wage in a bakery. Why wasn’t it included in the target when it seems to me to be one of the biggest burdens faced by larger-sized businesses?

Sir Martin Donnelly

The Government set out their reasoning in a statement to the House on 3 March. The argument was essentially that it was part of a wider package for business that included reductions in corporation tax and national insurance which, taken together, outweighed the cost of introducing the national living wage. Because that package included tax, which, as we have discussed, is outside the business impact target parameters, it was deemed reasonable to treat those measures together and therefore to exclude the national living wage from the BIT. From where I sit, the important thing was the transparency. The Government took a specific decision, justified it specifically and did not seek to change the wider rules, thereby maintaining the coherence of the system.

Chris Evans

How would you explain that to the average employer who would say that they are struggling to pay the national living wage? How would you explain to them, in layman’s terms, why it is not included as a burden on them?

Sir Martin Donnelly

It is accompanied by reductions in the taxation rates that they will pay on their profits and on national insurance for their workforce which, taken together in gross, outweigh the costs.

Chris Evans

Would you say there was an element of cherry-picking with this target? You pick the easy wins—the low-hanging fruit, such as plastic bags—but the bigger issues are just parked.

Sir Martin Donnelly

I think it is a very good Report from the NAO in a very complicated area. There are some decisions for Ministers and, ultimately, Parliament to take about coverage. What concerns me as an accounting officer is that, within the parameters we are set, the job is done professionally, and that it has a positive impact on lightening the unnecessary burden on business. Sometimes, of course, the burden is required. The evidence I see suggests that we are, however imperfectly, continuing to deliver this and that we are getting better at it over time.

Chair

Joe Perkins from the National Audit Office wants to come in.

Joe Perkins

Can I come in briefly on the tax offset issue? The national living wage was introduced at summer Budget 2015. There were quite a lot of changes to business taxation at the same time, including corporation tax cuts and cuts to employee national insurance contributions, but also the apprenticeship levy. The net effect of those is estimated by the Treasury to be quite a big burden on business, of the order of £3 billion a year in 2020-21. The witnesses, or the Government, have selected a certain set of changes to taxation as offsetting the national living wage, but there were other changes to business taxation at that time.

Michael Gibbons

If I may come in on that, because you said that the witnesses said this? I would like to make clear the position of the Regulatory Policy Committee: from time to time there are inevitably tensions with the nature of our advice to Government. We are independent; we are set up to have those tensions. We made it clear that our view of the national living wage as a new exemption was that we would straightforwardly wish for it to be included in the regulatory account—the BIT account—as, indeed, the changes in taxation would be included in the Government’s fiscal account. We felt we should just keep it straightforward. In our published opinion on the national living wage, we said that if the same rules for one in, one out in the previous Parliament had been followed, this measure would have been within the scope of the target. I would like to add to the commentary on the national living wage, because it came up in the previous session. I would like to reassure the consumer representative that the impact assessment did discuss the wider impacts on employees in particular and on society. It did not, to be fair, monetise them, but it did a full job in discussing the implications. That was a case—one not always followed around Government—where the wider implications of the effects on society were properly discussed.

Chris Evans

I would like to turn to paragraph 3.4 of the Report, on page 22, and look in particular at the red tape challenge. It says: “many departments have only a partial understanding of the total costs and benefits to business of the regulations for which they and regulators are responsible and of the scope for reductions.” Why is that?

Sir Martin Donnelly

The short answer is that it is a very complicated area. A lot of work has been done with and by Departments, including in some cases reviewing the entire stock of their regulation. We have also found—I defer to both colleagues here—that the red tape challenge approach of a bottom-up look at a series of regulations across a sector, often from more than one Department, is a very effective way of finding those that have most impact on business and where something can be dealt with. Obviously, some Departments are more business-facing than others, so they perhaps face less of a challenge in understanding that. We found the red tape challenge and its predecessors to be a pretty effective way of getting at where the burden really exists.

Chris Evans

But many Departments are not signed up. For example, it says in the same paragraph that “the Department for Environment, Food & Rural Affairs has compiled a comprehensive database of the legislation it has in force”, but that five of the 14 Departments have “no plans” to quantify regulations. I know that that is outside your remit, Sir Martin; you can only speak for BIS. I suppose I could ask Mr Turnock. If this is a No. 1 priority of the Government, why is EFRA massively up on this, yet the other Departments are dragging their feet and making excuses about it?

Graham Turnock

If I can answer for why EFRA is so strongly in the lead, there are very strong, coherent policy objectives in the Department that coincide with the better regulation objectives. EFRA sees simplification of the system of support to farmers as absolutely critical to its policy focus, and that is partly why it puts a lot more in. If you look at the figures, the NAO has reported on the size of the EFRA BRU, and it is considerably larger for its budget than most other Departments. We applaud EFRA for being very focused on the agenda. Some other Departments are not quite as focused, and generally that is where their policy interests are not so strongly aligned with the better regulation agenda, but that does not mean they are not doing good work. Quite often, they have chosen to focus on putting their energy into sectoral bottom-up reviews rather than doing an across-the-piece stock review, as EFRA did.

Chris Evans

Could you explain the comments of the BRE in paragraph 3.5 that departmental budgets are “specifically designed to avoid the need to calculate the size of the each department’s stock”? How did that come to be the case? Are people serious about reducing red tape and regulation?

Graham Turnock

Yes. Is your question—

Chris Evans

There are two questions there. Sorry, I should have waited for you to elaborate on why you think budgets are specifically designed to avoid the need to calculate the size of the each department’s stock. How has that come about?

Graham Turnock

The point is that if we had set the target as a reduction in percentage terms of the stock, we would have had to calculate the stock. By setting it as an absolute figure, we clearly do not need to calculate the stock. What we need to do is apportion that £10 billion between Departments in an equitable and reasonable way. That is what we meant to say.

Chris Evans

I will come on to some information on this, but in the experience of the BRE, are Departments serious about this target or are they coming up with pretty lame excuses to avoid doing it?

Graham Turnock

I think that the large Departments, on whom we are mainly dependent in hitting the £10 billion, are very well seized of the challenge that has been set of them and have, generally speaking, put in place substantial Better Regulation Units to support that. The indications are that their Ministers are focused on delivering as well. There are a number of smaller Departments that do not actually make that much of a difference to the £10 billion. The picture is a bit more mixed there, and they have very small Better Regulation Units, even for the size of their small budgets.

Chris Evans

But my concern is this. If you look at footnote 1 of figure 6 on page 23, it says: “As of June 2016, three departments had not agreed their deregulatory budgets”. Those were: the large-spending Department for Education; the Home Office, which probably has more regulation in terms of legislation than any other Department; and, most worryingly of all, HM Treasury. How has that come about? Are there any discussions with those Departments to agree those budgets? What has the progress been?

Graham Turnock

Absolutely. I think all three Departments are characterised by the fact that they did not have large programmes of deregulation in the previous Parliament. They were asked to deliver against one in, one out and one in, two out, but in the case of Treasury and DFE, they had very few new pieces of regulation. That meant they did not have to do very much deregulation. The Home Office ended up in deficit under one in, two out. They do not have experience and confidence in delivering large regulatory programmes. Because we were in the business of agreeing budgets with Departments, there would have been a choice for us as to whether to accept a very unambitious target from those Departments or to engage them in longer discussions to try to get to the bottom of a better understanding of what they could do, and that is what we are doing.

Chris Evans

To be clear, you are saying that the Treasury does not have the confidence. Is that the word you used? Did I get that right?

Graham Turnock

I would say that they have not got the experience of having delivered a substantial deregulatory programme, so therefore, yes, they are not confident in setting a large deregulatory target.

Chris Evans

Even though they regulate more than anyone else and have introduced more regulation in those five years than any other Department.

Graham Turnock

It is fair to say that they have regulated a lot, although much of that has come from Europe, so they were simply applying European regulation.

Chris Evans

That’s got to be deeply concerning.

Sir Martin Donnelly

May I briefly come in on this?

Chris Evans

I know I’m not being fair; I am talking about the Treasury and there is no Treasury witness here.

Sir Martin Donnelly

To underline the point that Graham made, it is important that we get the right stretch targets. We are in close discussion, including with Ministers, on precisely what those targets should be for the last three Departments. I spoke to the Treasury about that yesterday. People are very aware of the need to reach agreement. It is important that we reach agreement on a figure that is neither unrealistically high nor not stretching. The target process has helped us to focus all Departments on what they need to do, and there has been some pushback, which is fair enough, but we are getting there.

Chris Evans

So it’s a bit rich of the Treasury to issue guidance to Departments that they should monitor their ongoing impact around decisions when they have not got the confidence to set their own budgets. Would you say that was fair?

Sir Martin Donnelly

No, I don’t think that is entirely fair. There are some issues around financial services regulation that are quite specific and are partly covered by an opt-out in terms of systemic risk, I think. We just need to be clear that we are setting meaningful targets that can be met.

Chair

Do you think you have got enough powers, whether carrots or sticks, to get Departments to meet this agenda?

Sir Martin Donnelly

Honestly, I think that the encouraging thing about this agenda is that Departments themselves are owning more of it. I have been around this circuit long enough to know that it is quite easy to game systems. We are in a better place in terms of Department genuinely taking on the often difficult trade-offs they have to make between more regulation or regulation of a particular form and meeting their targets. Ultimately, for it to work, it has to be embedded in the culture of Departments. The BRE supporting, training and having people on secondment to the RPC from seven or eight Departments has made a significant difference.

Chair

One of the previous witnesses raised the issue of going back—I think it was the CBI—and looking at the real impact of existing regulations and learning from that. According to the NAO, only two out of 83 regulatory decisions have been reviewed. Are you confident, Mr Turnock, that the Better Regulation Executive, but also Departments individually can make good decisions if they are not looking back at what has worked and what has not? I will probably bring you all in on that, but do you want to start, Sir Martin?

Sir Martin Donnelly

It is a very important point. There is more to do. The BRE told Departments back in 2013 to publish updates on forward regulatory review programmes on statutory reviews. In the Small Business, Enterprise and Employment Act 2015, we made clear that reviews were required with this five-year review period for primary and secondary legislation. So, that five-year period is beginning for a lot of them and there are a lot of other reviews going on, including, I think, in the areas that the NAO looked at.

Graham Turnock

Yes, certainly. We really started ramping up the pressure on Departments in 2011. Before that, they had made a series of administrative commitments to carry out reviews. We weren’t convinced that they felt particularly bound to those commitments. From 2011 onwards Ministers agreed a policy of a default of a statutory review, so the legislation would contain a statutory commitment to review. I think it’s fair to say that to begin with we found it hard to get Departments to make that commitment and so eventually in the Small Business, Enterprise and Employment Act 2015 that was a statutory requirement to consider.

Chair

We know there are a lot of statutory requirements about impact assessments of different sorts and Bills; we all sit there in Bill Committees adding in another or another, because we think it’s a way of holding Government to account in the future. But they can be implemented with varying degrees of enthusiasm. Have you had any evidence yet of how effectively that is beginning to bite, or is it just going to be ignored or swept under the table?

Graham Turnock

Yes, so we did a spot-check on the same 10 regulations that the NAO looked at from the first year of this Parliament and I think that revealed compliance with the Small Business, Enterprise and Employment Act 2015, which was very encouraging in the case of those 10 regulations. I think we will probably want to widen that spot-check, but it looks as though it is biting effectively at this stage—perhaps not enthusiastically.

Michael Gibbons

I have a slightly different perception and rather more sympathy with the NAO Report on post-implementation reviews, and I am coming from a position of being a really very strong believer in the potential value of good post-implementation reviews to learn about policy making and perhaps to learn about natural biases, unintended consequences and unconsidered factors. So, we just do not know how much learning there is going to be, but I am quite sure that there is great potential to learn. We in the RPC have been particularly looking forward to the “five years later” post-implementation reviews coming through the system, and I’m bound to say that, looking backwards, we have not received anything of significance. We have received 11, creeping up to 13 I think, and only two of them were even in the scope of one in, one out, and all of them were of no major significance. So we are concerned about what we have already received and I think we are expecting another 50 non-statutory reviews, beyond the 55, this year. As far as I am aware, the departmental plans that exist for doing these reviews do not include sending many to us. I think two[1] of the top 10 are due to come to us, which we think is not enough. And I pick out the biggest of all of the account last Parliament. The biggest were pensions measures. The big “out” was the conversion from RPI to CPI—£3.5 billion. In itself, it was probably of the same order of magnitude of everything else put together. There is no plan that I am aware of to send a post-implementation review to the RPC for scrutiny, as I believe was intended by the impact assessment. So we are very concerned to see more of these.

Chair

I am keen to follow up on that, and so is Richard Bacon, because that’s very concerning. The other question it prompts is this: when you get this post hoc evaluation by a Department, is there a consistent methodology that you’re convinced is giving you the information you need as a Committee to have an understanding of how well it’s worked, or is there any area for improvement there? And I will bring in Richard Bacon next.

Michael Gibbons

I think I can only answer part of your question. We have done a lot of work, including with the BRE and with colleagues in BIS who are experts on evaluation and indeed post hoc evaluation, and so we are ready. We have designed the template and the format of our approach to post-implementation reviews, and as I say we have carried out some of them. So we have already got started. Whether we get what we are looking for from future reviews that we have not seen and may never see, I don’t know, but that is definitely something—we are with the NAO Report – where we agree that more should be done and more should be sent to us.

Mr Bacon

Mr Gibbons, do you think that Government isn’t actually nearly as interested in finding out whether things worked or not, and in the consequent consistent baselines, as it might pretend that it is?

Michael Gibbons

I don’t think I can attribute reasons of that sort to it. The Government is clearly very busy. It has a lot—

Mr Bacon

Yes, but it spends a lot of taxpayers’ money, and one would hope that it would want it to be well spent. I have been on this Committee since 2001, so I am now in my 15th year as of last month, and I am astonished by the frequency with which I have seen things go wrong in one place and then go wrong in another, unrelated place. One example is the lack of a senior responsible owner, which we know to be a generic problem. One saw that with the Bowman radio communication system in the Ministry of Defence, and then later with the InterCity franchising fiasco in the Department for Transport. There are many other examples. What worries me is that this Committee appears to be the collective memory for Government.

Chair

Actually, Mr Richard Bacon in particular.

Mr Bacon

There is a good book on this subject, by the way. What I cannot understand is why Government does not appear more curious about its own failures. There is a very rational explanation for that; I am just wondering if you have got an explanation.

Michael Gibbons

I stick with the comment that they are committed to doing this as part of the Government rules. They haven’t done it yet; we look forward to them doing it.

Mr Bacon

Isn’t that the triumph of optimism over experience?

Chair

When do you hope for that, in a timeline between now and, say, the next general election in 2020?

Michael Gibbons

Well, the 55 statutory review should be with us this year. We are only at 13 at the moment, and there are a further 50 that do not have statutory underpinning but are committed, as far as we are concerned, administratively, so we should be seeing over 100. We have seen 13, and none of them are of significance yet, so the really big, important ones, where real learning could be discovered, we have not seen yet and we don’t know when we are going to see them.

Chair

Graham Turnock or Sir Martin, why is that the case?

Graham Turnock

To date, we think that 14 should have been sent to the RPC. We think three are early, so there are four overdue currently. We are chasing up the Departments concerned, emphasising that they have made a statutory commitment, it is a serious matter if they do not meet that statutory commitment and we will be on their backs.

Chair

You will be on their backs. What other penalty is there?

Graham Turnock

If you have made a statutory commitment and failed to meet it, clearly there are consequences—judicial consequences, conceivably. We intended this to be a serious commitment, and we look forward to—

Chair

Sir Martin, you are a permanent secretary and an accounting officer. Are you frightened if Mr Turnock and his crew come after you? Does it make you jump? What is the problem? What is the sticking point, do you think, for you and your colleagues?

Sir Martin Donnelly

I certainly think these need to be taken seriously, for all the reasons that Mr Bacon has outlined, and because they are part of the commitment. The five-year period is an important one, because it is long enough to work out what has gone on and get the learning, which we must get back into the system. We will also aim to use the annual report on where we are in meeting the target to show who has done what. I think this is an issue which we need to highlight again over the coming months to Departments, because they take on the responsibility. It is not being met, but we need to make sure it is met, and met substantively.

Graham Turnock

I just want to highlight the fact that it is not us that the Department should be frightened of. They had made a statutory commitment. We are highlighting to them the fact that they are exposed to failure in meeting that commitment—

Chair

The early warning sign of what is to come.

Graham Turnock

It can mean judicial review.

Sir Amyas Morse

Just thinking about BIS as, I guess, the champion of business, would you say that people in small businesses, once they finish their day of earning their living and turn to their other role as unpaid public servants filling out administration, feel that the system that we have been talking about actually champions their interests or puts them at the centre of things? Or would you say that as they listen to the technical justifications for why things can be scored or not caught, they find that an inspiring picture of how well they are being defended at the centre of government? How do you think they would react, listening to it?

Sir Martin Donnelly

I think the answer to that has to be empirical. The business perception studies we do every two years or so show an encouraging trend, from 62% seeing regulatory issues as not getting better a few years ago in 2009 to 51%. We believe it will shortly fall below 50%; we will be producing another survey. The other thing we are doing, which is really important, is following some small businesses over a year—12 of them—in a so-called longitudinal survey, to give us really detailed information about what they are actually doing, what matters to them, where we are helping them and where we are not. We will get that information next spring, I believe.

Michael Gibbons

There are very few grounds on which the RPC can give a red-rated, “not fit for purpose” opinion on an impact assessment. The main one we use is inaccurate assessment of the costs and benefits on business and civil society. In I think 2013—I am happy to confirm later—the Government introduced a small and micro business assessment test, and we were very pleased that it introduced that. That enabled us, if we were not satisfied having applied that test, to red-rate a measure on those grounds. That is a very specific piece of attention drawn to the small business impact. It requires the Department to ensure that it has understood the impact on small businesses and done whatever is reasonable and proportionate to mitigate the effect. If we judge that they have not done a proper job on either of those counts, we will red-rate as not fit for purpose.

Sir Amyas Morse

Have you applied those ratings to existing regulation or only to new regulation?

Michael Gibbons

Only to the flow since the measure was brought in, probably in 2013. But again, it would be part of a post-implementation review to see what would have happened to the early measures had they been applied then.

Chair

We are certainly going to be coming back to this.

Chris Evans

I want to come to paragraph 4.11. This is a question really directed at Mr Turnock. It says there: “HM Treasury’s Green Book guidance says that while a regulation is being implemented, policymakers should monitor the actual impact of the regulation.” However, the NAO Report finds that “in practice the government places little emphasis on monitoring the impacts of regulatory decisions. The BRE’s 136-page Better Regulation Framework Manual”—I am sure that is a bestseller—“contains only three sentences about the value of ongoing monitoring in a regulatory context.” Do you think that was a mistake, or do you think you should have devoted more time to that? That is a key part of—

Graham Turnock

What I would say is that there is a whole publication, the Treasury’s Magenta Book, on monitoring and evaluation. Essentially, that is the key reference work for Departments. What we are simply requiring Departments to do is to consider monitoring in the context of regulation. We did not think that it needed expanding in our guidance, which picks up on particularly bespoke issues under the system of regulatory accounting.

Chris Evans

The NAO looked at 10 impact assessments and 10 produced in the last Parliament, and only five of those included monitoring and evaluation plans. Could you explain that in a bit more detail?

Graham Turnock

Actually, I think they said none of them contained plans for monitoring and evaluation.

Chris Evans

Yes, none of them. Sorry, my eyes are going. Why were they not included?

Graham Turnock

I think that is a question properly for the Departments, but what I would say is we have checked with those Departments concerned and in six of those 10 cases, they do have active plans to monitor; they simply did not put them in the impact assessment. What we do is red-rate them if they have incorrectly calculated the cost for business or incorrectly assessed the impact on small business. The Regulatory Policy Committee can and does comment critically if other aspects are not covered. Those Departments did not do their jobs properly, but we stopped short of red-rating them because our rules prevented us from doing so.

Chris Evans

But according to the Report, even where they do monitor actual impacts on businesses, “the BRE does not report the results of such monitoring or update progress recorded towards the Target as new evidence emerges.” Why is that? What I am concerned about is that there is then no hard evidence of how you are moving towards the target.

Graham Turnock

There are a couple of things there. First of all, as we just discussed, under the small business Act there is a much stronger presumption that Departments will do a statutory post-implementation review, so we should be getting much better assessments of whether the benefits foreseen actually come through. We will be in a much stronger place as a result of that. As Michael was saying, at the moment we have only emerging evidence coming through from the 2010 to 2015 Parliament.

Chair

We are always slightly cynical that it is always going to get better, although we recognise this is work in progress. How are you going to make sure that Departments learn from each other? The Committee is going to be looking at things and coming up with its findings, but it is your job and your executive’s job to make sure that lessons are learned across Whitehall. What is the plan to get that to happen?

Graham Turnock

We put on a lot of training courses for Departments—I would say a dozen training courses a year.

Chair

How many?

Graham Turnock

A dozen. In fact, probably more—getting on for 20. I am absolutely certain that we would want to cover lessons from the post-implementation phase as part of that.

Chair

Training courses are all very well—people go along and do the training course, but when they are helping to draw up policy or making recommendations, there may be a big priority that the Secretary of State or the Department has that diverts them from actually thinking about this, although they can do the course fine. How will you know that they have actually implemented it? Will there be anything in their promotion prospects, for example, to make sure that they are actually watching this seriously and taking that learning on board? How do you actually get it to bite?

Graham Turnock

We talked about the RPC’s role. I think one of the things the RPC can do is challenge and check on whether lessons have been learned when new proposals for regulation or deregulation are put through.

Chair

Who is responsible if they haven’t? Perhaps it is better to ask Sir Martin. If your Department gets a rap on the knuckles from the Committee because it wasn’t as effective as it should have been or it wasn’t reducing burdens as it had intended, obviously there is a positive learning process that one would expect to go through for next time. But if it consistently happened and you found that your Department, for example, was doing badly, how would you get that through your teams to make sure that it was seen as enough of a priority, without diverting them from BIS’s other priorities?

Sir Martin Donnelly

It is an important issue for me as a permanent secretary and for my permanent secretary colleagues. We are each in the process of having meetings with the Minister for the Cabinet Office to review our process on this. Certainly BIS and other Departments have a Minister responsible for checking progress against the next target and also ensuring that we as a Department and other Departments are doing the business for the RPC. Over time, people are actually getting better at that, but it is a Government manifesto commitment both to achieve the £10 billion target and to make this process add value.

Chair

You talk about the £10 billion target. We know, as politicians, that politicians readily set figures and targets. But if you look at this as a percentage of turnover for small businesses, do any of you have an estimate or an idea of what percentage of turnover they should have to spend on regulation as a maximum? That is really where it will bite for the individual business, whatever the national figure. It is a difficult question, I know, but have you any ballpark figure—a range? Clearly half their turnover would be far too much, but is it 10%? Is it 1%?

Sir Martin Donnelly

It is a really difficult area to give a useful figure in. We have work going back 10 years to try to look at the total amount of regulation—there were figures of £100 billion to £150 billion and there was an attempt to pull the administrative burden out of that. Of course, a lot of regulation permits businesses to do things—you have to meet health and safety standards and so on. It is a positive in the right form. Thinking of it as a blob is not really very helpful and is quite difficult in analytic terms.

Chair

But there is a blob nationally. The £10 billion figure is a blob.

Sir Martin Donnelly

We are not yet in danger of overdoing it. The £10 billion figure in the last Parliament has produced positive results—perhaps it is just worth underlining that. The OECD, the World Economic Forum and others say that we are getting better, including in global terms, at managing regulation intelligently and bringing it down. So another £10 billion is a continuation of that. I don’t feel confident giving you the figure under the line.

Graham Turnock

As Sir Martin says, there have been estimates in the past of £100 billion. If you add other estimates to that, you probably get to between about £150 billion and £200 billion of costs to the economy, and then obviously it is a simple matter of arithmetic.

Chair

So you have to divide it.

Graham Turnock

It comes in the region of 10%.

Chair

So you have an idea of the burdens at the moment.

Graham Turnock

It must be in the region of 10%. We know that for small businesses it is disproportionately more, and we are obviously very concerned about that.

Chair

So that is why small businesses are supposed to be exempt from a number of these measures.

Graham Turnock

Certainly microbusinesses, yes.

Chair

We also had evidence from Citizens Advice. It highlighted that one of the concerns when Parliament sets regulations is to protect consumers, yet the Government has resolutely set its face against doing a wider assessment of the impact on consumers. I wonder if you could explain the rationale for that—vulnerable people; it could be environmental issues and all the rest of—plastic bags. We haven’t looked at regulation on the other side of that debate. Why is that, Sir Martin?

Sir Martin Donnelly

And BIS is also responsible for consumer issues, and we do take this very seriously. I would make two points: one is that when we get this right, as in the Consumer Rights Act, we can protect consumers more effectively with simpler investigative powers and also lighten the burden on business; so there are potential win-wins here.

Chair

But you don’t know if you don’t measure, do you?

Sir Martin Donnelly

The second point I would make—and you are right that the choice is made here by Ministers—is that we are talking about the business impact target. This is the impact on business of meeting all the Government’s wider objectives. If we extend what we are focusing on, the risk is that we lose that value.

Chair

I take the point, but the very clear point has been made, which we all see, and I am sure you see too, that if you can reduce the burden on businesses by saying “We don’t really care how much you pay people, whether you pay their pensions, whether you take account of health and safety”—if you really took an extreme view—it would be cheap for businesses but it would be pretty bad on a wider scale and actually could have knock-on costs to the wider economy, let alone the individual consumer or non-recipient of the benefits of it.

Sir Martin Donnelly

And we have to look at the wider social impact as part of that initial analysis, and that goes to the RPC.

Chair

So, to Michael Gibbons.

Michael Gibbons

Can I start off by saying I and the RPC, as you might expect, are great believers in the real potential value of the use of impact assessments as a sort of business case—I am a businessman—for why a regulation should be introduced. It is entirely appropriate to look at the impacts on all sectors of society. The BIT provides a very clear incentive for the impact assessment, currently, to get the calculations concerning business and civil society right, because if it does not we are entitled to red rate it, declare it not fit for purpose and send it back round the circle, which Departments find irritating and troublesome. So there is a clear incentive, which Departments respond to, and we have been saying it has an impact. The difficulty for us is that the impact assessment is not and should not be just about business; it is about the impact on the whole of society, including consumers, employees and so on. We found on our own analysis that in 2014 only something of the order of a third of the impact assessments where the wider impact is assessed; this proportion went up somewhat, last year, to 60%; but that range is just too small, and so we wish that to be improved. The incentive that could be considered here is for us to have the ability to red rate—to declare not fit for purpose—an impact assessment that doesn’t do the proper complete job that an impact assessment should.

Chair

Do you look at knock-on costs as well? We are very concerned in this Committee about what we call cost-shunting. When you look at this and want to try and look at the wider impact assessment, there can be, as this advice also highlighted, actual cash costs to consumers—that is easy to identify—but also hidden costs: problems that arise and then maybe have a knock-on effect. For instance, if you get into debt because of a regulation that has changed, that can have a knock-on effect to all sorts of areas. I won’t highlight examples, but I think you know what I am driving at.

Michael Gibbons

Yes, absolutely, and, yes, of course we consider, proportionate to the size of the measure, not just the direct costs and benefits but the indirect costs and benefits; but sometimes they are just not there to assess, and all we can do is to comment harshly in our opinion, which we do—but the real incentive is to red rate it. I will give you a particular example. In 40% of the cases we have seen in the last year, proposals showed a net cost to society. Now that cannot be robust. We have no idea why it shows a net cost to society. It could be the Departments have not been able to monetise, and that is fine, but they have not discussed the consequences—or whether they have not troubled to do the work. We don’t know what the reason for that is, but it clearly cannot be satisfactory.

Mr Bacon

You don’t know what the reason is, but do you have a guess as to what the reason is? What is your surmise?

Michael Gibbons

We are very evidence based. We don’t do a lot of guesswork. It is simply that the Departments, I am sure, are responding to the incentives that they have, and not responding as strongly to the incentives that aren’t there, where the incentives are weaker.

Mr Bacon

Sir Martin, what incentives would you like, to help you do an even better job?

Sir Martin Donnelly

There are some decisions that are clearly for Ministers to take, but it is also the case that the Treasury appraisal—certainly the Green Book—includes the impact on wider society. So that is part of the process that all of us as Departments have to go through. It is also true, as Michael said, that you cannot always monetise some of these issues: the Home Office and the psychoactive substances ban is a classic example where we know there are some consequences that it is difficult to put a monetary value on but which are valuable to society. So it is a complex area. I think the answer is we have all got to follow the guidance that we have been given.

Mr Bacon

Perfect civil servant answer.

Chair

Sir Martin, we can see why you got your knighthood—among many other reasons, no doubt.

Mr Bacon

What lessons have you learnt from your time in Government about things you would not do again?

Sir Martin Donnelly

Ooh, goodness! How long have you got?

Chair

I think Mr Bacon is suggesting you co-author a book. [Laughter.]

Mr Bacon

Are you planning any more competitions any time soon?

Sir Martin Donnelly

Competitions?

Mr Bacon

For naming things?

Sir Martin Donnelly

My family around the world thought that that was fascinating.

Mr Bacon

I am very pleased.

Sir Martin Donnelly

Yes, well.

Chair

If you had not got your knighthood before, you would probably have got it for that. Can I ask about this knotty issue about not including tax? You keep drawing this box about the limits, but you very nearly heard from the FSB and we see from the Report how much of small business burden is the tax system. We hear from the Tax Minister that digitisation is going to make it simpler and easier, but that does not seem to be the impression that businesses have. So are you having any discussions in Government about that? I also wanted to ask Michael Gibbons if he has got any views on that.

Sir Martin Donnelly

You are right—it is a very important point. It is important to businesses, so it must be important to us because we want businesses to want to grow, expand and take on more people. Graham, you have regular sessions with our colleagues in HMRC, which are part of trying to pull this together across the lines of our different tasks.